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Capital Gains Tax

Discussion in 'General Property Chat' started by Investing101, 7th Nov, 2015.

  1. Investing101

    Investing101 Well-Known Member

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    Hello,

    How long must you live in a property after purchase for it to become your PPOR?
    I can't seem to find a straight up answer for this.

    Scenario: Buy a house, maintain current lived in rental, no current PPOR, use new house as holiday house for X months, turn to IP, start 6yr timer for CGT avoid.

    Is this legit?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    nope.

    If you are not using it as the main residence then it won't qualify for the CGT exemption.
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    The scenario presented means cgt will be payable as you haven't lived & made it your ppor in the property before letting it out.
     
  4. Investing101

    Investing101 Well-Known Member

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    On paper, it would be my PPOR. I would have utilities on and mail directed there. I would even actually be living there for a lot of the time.
     
  5. Scott No Mates

    Scott No Mates Well-Known Member

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    @Investing101 ... And not lodging a bond, declaring income, claiming interest & expenses etc?
     
  6. Investing101

    Investing101 Well-Known Member

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    Which is why i'm considering this. No capital gains (if we sell <6yr) + great house to use over summer - Loss of rent vs Instant rent - Capital gains - watch others enjoy the fruits of my labor :D
     
  7. Investing101

    Investing101 Well-Known Member

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    I want to keep this above board, so i would not be claiming anything tax wise as an IP.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Doesn't sound like a main residence to me.
     
  9. Investing101

    Investing101 Well-Known Member

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    i think you missing my point. I could exhaust the list of defining a PPOR and make it so. I'm just trying to:
    A. find out the minimum time residing in a home to call it PPOR
    B. Evaluate whether the lost rent is worth it just for a tax break.
     
  10. Scott No Mates

    Scott No Mates Well-Known Member

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    There's a lot of cross checking which goes on - bond lodgement (your lease as well as the property), licence, bank account etc.
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The legisation is s118-145 ITAA 97. You can look it up and see the wording but there is no minimum time requirement to live in the property. Whether it is a main residence or not is a question of fact. if audited you will need to provide evidence that it was your Main residence. The ATO may have other evidence that it is not your main residence - such as evidence you are still living elsewhere. They will then have to weigh up your evidence with their eivdence and make a decision. You could then dispute that at a Tribunal, if it goes against you, but the Tribunal will also only be able to go on the evidence you and the ATO present.
     
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  12. Investing101

    Investing101 Well-Known Member

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    Thanks.
    So:
    A. no time
    B. Not worth the trouble.
     
  13. wogitalia

    wogitalia Well-Known Member

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    Simple answer, absolutely not your main residence.

    The ATO is targeting houses in holiday regions for everything for a start, so if you're buying it in a known holiday region they will be hawking it.

    You mention that you wont be doing things above board on the lease but is your current landlord doing it? ATO will know that you have a bond that you haven't reclaimed and are thus still living in that property. To be your main residence you must move into it and reside in it at the earliest practicable time and the ATO is pretty stringent in how they rule on that.

    The general rule is that you must live in it for a solid 12 months before you can even attempt to apply the "circumstances changed" kind of argument that allows you to rent it out.


    I think you have a pretty twisted understanding of above board. Not declaring income so that you can fraudulently claim the Main Residence Exemption is about as far from above board as you can get and if the ATO were to find out, and they probably will, you'd be up for not just paying the tax but also likely cop significant penalties for your actions.


    There is no "minimum time". You have to move in and live in it as a main residence for a substantial period of time. If you do not move into as a main residence and use it as such, it can not be your main residence without getting a private ruling because you had extreme circumstances outside your control that were the reason you didn't live in it (Basically things along the line of you were paralysed and stuck in another location for treatment type extreme).

    The rule of thumb is that if you do move in and live in it properly, 12 months is a reasonable period to establish a main residence but it's a rule of thumb and not a law or certainty.

    You can try and pull it off, just know that what you're aiming to do is not legal.
     
  14. Investing101

    Investing101 Well-Known Member

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    Again, i feel misunderstood for my intentions here.

    Yes, i don't want to pay CGT, who does?. No, i'm not aiming to do anything illegal.
    "General rule" doesn't mean much if circumstances play part, i'm looking for black and white law.

    There is no income here.. what are you referring to with declaring?

    So, forget my current residence and the 'on paper, remarks', if i was to move to a location, buy a house to live in for that time knowing it would only be for 3 months then rent out the house after, that's illegal?
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It is still worth considering. Potential CGT savings could be very large. Just do it properly. I don't think 12 months residing there would be needed, but a shorter period could suffice.
     
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  16. Investing101

    Investing101 Well-Known Member

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    https://www.google.com.au/url?sa=t&...cCJJ5YJd8RbYQ_1Nu8TEIA&bvm=bv.106923889,d.dGY

    "For the purpose of determining the applicant’s principal place of residence, the Commissioner will determine whether the applicant is occupying the FHOG property as their main residence, regardless of the length of their occupation6."

    I know I could prove legitimately that this was my PPOR, even if i maintained another residence for work purpose. I'm just trying to do the sums and right now they appear somewhat balanced if It was 3 months of having to live there, but not worth it for me at 6 months.

    No one wants ATO auditing them even if you are doing the right thing and so that also does add to the mix.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That relates to state law, CGT is commonwealth. Different laws and different administrating agencies. But similar principles apply. Length of residence is only one factor considered.
     
  18. wogitalia

    wogitalia Well-Known Member

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    If you are living somewhere else you're going to find it next to impossible to prove it was your main residence.

    The ATO has rejected many claims where people were relocated interstate or to other countries. Needing to be somewhere else for work is not an acceptable reason to not reside in the place and if you are not residing in the place it is not your main residence (for starting the exemption purposes, once you later move out the 6 year rule applies)

    As Terry said, length of stay is only one factor, the fact that you don't plan on actually living there is the far bigger issue, imo. If you're going to maintain your rental premises and assuming they're legitimate and above board then you have a registered bond, a landlord and your neighbours that are all going to likely go against you being able to prove you aren't residing in the rental.

    As always, I'd be seeing your accountant and going over every detail with them, from what you've provided if I was your accountant I'd say don't bother with the main residence because nothing you've said ticks the boxes for it, ultimately the choice would still be up to you if you wanted to go against the advice or if you can find one that agrees (or if you're leaving out some key detail that changes things) but your accountant may be more aggressive than I am and as I said, there could be a key element you've left out that changes things (without you even knowing it!).
     
  19. Investing101

    Investing101 Well-Known Member

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    Wife live there full time, house in her name, i live there when i can outside work. problem solved
     
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  20. wogitalia

    wogitalia Well-Known Member

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    If it's not in your name then what you do doesn't matter very much at all. As I said, that's the kind of vital information that comes up when you talk to the accountant. If it's only in your wife's name and she is living there then it probably passes the eye test at least.